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Corn exports could reach USDA goal
With only two weeks remaining in the 2005-06 corn marketing
year, export sales look as though they are able to hit the USDA target of
2.1 billion bu. Domestic demand remains very strong, at least into the end
of 2006 for feed use purposes and ethanol well into 2007 as long as NYMEX
gas futures offer a platform to hedge against. Bearish to corn futures is
non stressful weather and a likelihood of USDA raising yield and production
in its Sept 12th crop report. Also bearish to corn futures is the prospects
for a record China corn crop which could permit a fierce Asian competitor
to resurface into the late winter-early spring of 2007.
CFTC/Price Report: with Friday's release of the latest CFTC report, it has
now been four consecutive weeks were they have reduced longs in its
combined futures and options position. Our special report held within our
web site does show how funds have lifted a sizable portion of its long
position. There is some ideas of a pre harvest bottom. Our custom report
does show how even leaving the 2003 marketing year when global stocks were
the tightest dating back to 1990, funds still managed to push its position
down. Given the maturity of this years crop, we do not see weather as much
of an influence as most late Aug-early Sept time frame and see little
reason why funds would alter its typical fall pattern by pressing futures
lower. However we are sticking with our plan which suggest as futures press
lower into the early stages of fall harvest how demand is likely to tapped
in a big way and set off for a rally into March of 2007.
Marketing: Our new crop hedges are in the July 2007 futures. We have
covered a third with 270 May calls and in early Sept will add the second
third, also using the May options. Both futures and cash typically find its
high very near the March 31st planting intention report and a big reason
why we prefer to use the May options which expire the third week of April.
No sense in spending more for time value by using the July options to cover
hedges. We do plan to add the last third of the call position in early
October. Research we completed today does show that even when entering a
new marketing year and projected end stocks cut sharply, futures find a way
to work lower into the harvest.
Crop Condition: A subscriber to our Allendale report on our web site called
and pointed out how 2006 corn conditions could be building a similar
pattern as the 2005 corn crop when looking at the graph. The question is
"was there much adjustment from the Aug to Sept crop report in yield and
production. The specifics are yield from the Aug 2005 crop production
report into the Sept did increase by 4 bu per acre and increased production
by 289 mil bu. If USDA were to find a reason to adjust this Sept's yield by
4 bpa acre, it would suggest an ave yield of 156.2 bpa and production of
11.264 and potentially adjust end stocks from 1.232 bil bu to 1.52 bil bu
and likely press prices into LDP ave range levels of 5 to 15 cents by early
to mid October. Our thanks to Jim of Ohio for catching the similarity in
crop condition and the questions.
Corn Technicals: Sept futures close is 2250 vs last Friday's 2196, up 2.3%
for the week but down 6% for the month. Our key custom Moving Averages are
2220, 2220(support) and 2450. Dec futures close is 2416 vs last Friday's
2356, up 2.5% for the week, and down 3.4% for the month. Our key custom
Moving Averages are 2390, 2390(support) and 2580. 50% retracement is 2500
and 62% retracement at 2530. Please see our Grain Trading Strategies page
for objectives on our long Sept and Dec corn futures position.
Trade Position: We are long Sept and Dec corn futures as outlined in our
Grain Trading Strategies page. The main reason for our long corn position
is mostly from the technical chart picture. The tight stock situation and
eager demand is supportive. We do not suggest the rally in corn may be much
more than 50% retracement. These levels are 2320 vs the Sept futures and
2500 vs the Dec futures. In order to turn bears to bulls, 2420 needs to be
cleared in the Sept futures and 2570 in the Dec corn futures.
Friday at 2 pm: we concluded taking crop yield estimates at 2 pm Friday
August 25th to stay within the guidelines of our 17th annual survey. We
will release the results of the survey on Sept 1st at 7:30 am. Allendale
thanks you for your eagerness to participate in this once per year event.
Soybean Fundamentals: Two key reports for soybeans late this week, 1st the
weekly export sales and the US Census Bureau Crush, one bullish, one
bearish. August rains continue to swell the crop size for the anticipated
Sept 12th crop production report.
US Census: the good news is the July soybean crush of 148 mil bu is a
record dating back to the 1999-2000 market year. The level we needed was
137 mil bu and is 6.4% above yr ago July levels of 139 mil bu which was a
record for the month of July until today. However attached to the Census
data was soyoil stocks of 3.121 billion pounds which are 6% higher than
USDA's latest est and soybean meal stocks of 337 thousand short tons which
are 34% higher than USDA's latest estimate. By looking at our special
reports section of our report within our web suit you will witness first
hand how crusher margins are well above full production and continue to
hold an upward trend which has been in place since late last year.
Weekly Export Sales: we understand how when there is only two weeks remain
for the USDA to report 2005-06 export sales for soybeans how foreign
interest has already turned its attention to the S American old crop stocks
and new crop developments for the USA crop but BOTH the old and new crop
sales of USA soybean were bearish. The good news is the old crop sales and
shipments are likely to make USDA target of 930 mil bu vs last years 1.122
bil bu. However the new crop sales of 336,000 tonnes was well below trader
expectations of 400,000 to 700,000 tonnes. China and Europe continue to be
attracted to far less expensive Palm oil. Rotterdam veg oil stocks have
Palm oil at 52,674 metric tonnes vs soyoil stocks of 25.560 metric tonnes.
Palm oil is center stage while soybean oil regardless of its taste
preference is taking a back seat economically.
CFTC/Price Report: those with access please be certain to see today's
update. You will see first hand how funds combined futures and options
short position is zeroing in on key supportive levels of near 60,000
contracts short. They have visited this area in early 2005 and again
shortly after the beginning of 2006. Based on this research we suggest the
funds may be willing to begin to build some consolidation via long calls.
We have updated our Grain Trade page to take advantage of a short covering
rally but immediate resistance needs to be breached in order to confirm the
funds short term interest in doing so.
Soybean Oil Technicals: key resistance for the December soybean oil is 2630
with support at the 2530 level. There are no gaps in the daily charts above
but can find a gap from 2475 to 2480 and likely to be filled before
expiration. Tonights close at 2555.
Soybean Technicals: Sept futures close is 5430 vs last Friday's 5470, down
1% for the week, down 7.2% for the month. Our key custom Moving Averages
are 5530, 5560, and 5620. Nov futures close is 5570 vs last Friday's 5604,
down a half percent for the week and down 7.2% for the month. Our key
custom Moving Averages are 5620, 5640 and 5750.
Trade Position: because old crop futures are technically oversold we are
willing traders to stop into a long position with limited upside potential.
Our long Nov beans risk was triggered and have entered a short position. We
do plan to keep risk tight as funds may have reached near its limit of
shorts and could find reason to cover shorts before the end of the month
and well before the Sept 12th crop report.
Wheat: rumors of Brazil buying USA wheat and a technical break through
early this week allowed us to buy into long CBOT and KCBT futures this week
and able to reach our objective by Friday. Technically the wheat looks like
a sell up against chart consolidation. The 7 day rain outlook for Kansas is
bearish to futures. We do remain long term bullish to wheat but prefer to
be patient to build longs just as the 2006 corn harvest begins.
CFTC/Price Graphic: Funds have a knack of pressing its cumulative futures
and options positions lower into the fall and then make a major correction
higher after the beginning of the new year.
Weekly Export Sales: we are one week shy of completing the first quarter of
the 2006-07 marketing year for wheat export sales and the results have cast
a gray outlook. Thus far this marketing year, export sales are running 20%
below year ago levels. Sales thus far this year are 296 mil bu vs 369 last
year at this time, 432 mil bu the year before and 399 mil bu the year
before, once again for this time of the marketing year. The last four week
export sales pace suggest a target of 724 mil bu and not the 900 mil bu the
USDA is presently using.
Wheat Technicals: Sept CBOT SRWW futures close is 3784 vs last Friday's
3644, up 3.8% for the week and down 5% for the month. Our key custom Moving
Averages are 3700, 3690 and 3800. Sept KCBT HRWW futures close is 4592 vs
last Friday's 4542, up 1% for the week but down 7% for the month. Our key
custom Moving Averages are 4550, 4530 and 4650. Sept MGEX spring wheat
futures close is 4450 vs last Friday's 4484, down 1% for the week and down
8.5% for the month. Our key custom Moving Averages are 4510, 4560 and 4600.
Trade Positions: We reached our objective on long KCBT and CBOT wheat
futures and given the present fundamentals and chart based resistance we
are more likely to be sellers of the present corrective rally than enter
new longs. MGEX wheat could be a buy only if our short term custom Moving
Averages are breeched and export sales made.
Allendale Lean Hogs: Wrapping up the week we can confirm the cash hog
market has topped. Prices rallied in August for one last hurray as demand
for Labor Day was strong and market ready hog numbers were smaller than
usual. The latest national weight report, as of mid month, indicated
carcass weights at 195 which is 1 lb smaller than last year. The last time
weights were below last year was back in May. Now that the last up move is
over in cash hogs we have to wonder about potential downside in futures.
They are already pricing in quite a bit of the normal downside which
happens in cash hog prices from now into fall. Subscribers to the Advisory
Report through our website can access the hog price chart at the end of the
page. We would feel more comfortable bearish the December rather than the
October at this point. Hedgers are advised to get to lock up unhedged
Allendale Live Cattle: Bullish feedlots won out Friday. Cash cattle trading
was widespread in the plains at $87 and $87.50. There was even some $88
trades reported in Kansas but we have not been able to confirm volume. We
noted this week bulls can argue packers have been running kills at an okay
pace while market ready cattle numbers should be decreasing. On the other
hand wholesale beef prices have tanked all week. With today's losses it
comes to $3.04 for choice and $3.90 for select boxed beef. The short term
break in August we had been looking for has not happened. Staying with the
February/October spread would appear to be a better choice than any short
futures. Long term we remain bullish deferred futures. There is no reason
to add to the limited hedges already in place.
Allendale is registered with the CFTC and NFA and is a member of the NIBA.
The bottom line is we are a regulated firm which can be extremely important
in this day and age.
With only two weeks remaining in the 2005-06 corn marketing year, export sales look as though they are able to hit the USDA target of 2.1 billion bu. Domestic demand remains very strong, at least into the end of 2006 for feed use purposes and ethanol well into 2007 as long as NYMEX gas futures offer a platform to hedge against. Bearish to corn futures is non stressful weather and a likelihood of USDA raising yield and production in its Sept 12th crop report. Also bearish to corn futures is the prospects for a record China corn crop which could permit a fierce Asian competitor to resurface into the late winter-early spring of 2007.